Indonesia’s economic outlook has recently come under closer scrutiny from rating agencies. After Moody’s revised the country’s outlook to negative earlier this year, Fitch Ratings followed with a similar move last week, although it affirmed Indonesia’s investment-grade rating.
The immediate response was unsurprising: concern and speculation about the country’s economic outlook. Yet rating outlook revisions do not necessarily point to an immediate shift in macroeconomic fundamentals. Markets tend to react not only to economic indicators, but also to the clarity with which a country explains its policy direction.
This helps explain why attention swiftly shifted back to the Indonesian State Budget (APBN). As 2026 approaches, the conversation has narrowed into two questions: how strong is growth, and how large will the deficit become?
These are the right questions, but they are not the whole story.
If we examine the economy without the noise, the picture is relatively consistent. Indonesia posted 5.1% growth in 2025, slightly better than the previous year. The fourth quarter grew even faster, at 5.4% year on year. Consumption remained steady. Investment continued to expand. Debt remained comfortably low. These are not the indicators of an economy losing momentum.
The problem is not the economy, but the outdated reliance on a single framework for interpreting it. For decades, the APBN has been the dominant lens through which Indonesia’s economic management is viewed. It has been expected to fund infrastructure, stabilise demand, deliver social welfare, and respond to shocks – all at once.
The APBN’s limitations are clear. Even with planned spending of around IDR 3,842 trillion (approximately US$232 billion) in 2026, the budget represents only about 16% of GDP. Expecting it to shoulder the entire burden of long-term structural transformation is mathematically impossible.
Yet public expectations have not shifted accordingly, which has created a persistent mismatch between what the APBN can do and what people assume it should do.
This is why Indonesia is gradually adopting a dual-arm approach to economic management – an evolution that, in my view, has not yet been properly understood. Early last year, the government established Danantara, the Indonesian sovereign wealth fund. Observers treat Danantara as though it were just another state-owned business or a special projects vehicle. That interpretation misses the point. Danantara is not peripheral. It is an institutional extension of the state’s economic capacity.
The distinction between the two arms should be clearly made.
First, the APBN remains the state’s primary instrument for public service delivery, social protection and macroeconomic stability. It is designed to face the public and maintain predictability. The 3% deficit ceiling remains a critical anchor. It is one of the strongest signals of Indonesia’s fiscal discipline.
Second, Danantara operates as the state’s long-term investment arm. It manages funds totalling IDR 14,610 trillion (US$900 billion), designed to face investors and deploys capital into productive, future-shaping sectors. For many years, Indonesia has needed significant capital formation in productive sectors. However, private investment has not always been sufficient. In 2026, Danantara planned four strategic investment projects totalling IDR 202.4 trillion in waste processing-based energy sector, basic chemical industry, agriculture, and digital infrastructure. Danantara is expected to draw in private capital and serve as a catalytic anchor, de-risking long-term projects, and promoting greater participation from both domestic and foreign investors – without drawing on the APBN.
One point frequently misunderstood is the treatment of state-owned enterprises’ dividends. Diverting dividends from the APBN to Danantara is not a fiscal loss. The money is being reallocated from routine revenue into investment capital. In many ways, this is a more disciplined use of funds, because it directs resources toward assets that can generate long-term returns.
This approach has raised concerns about off budget risks. But there is a crucial distinction between commercial exposure and sovereign obligation. Danantara does not automatically pass its risks onto the state. It operates with commercial evaluation, explicit governance standards and the expectation that projects must meet minimum viability requirements. Not every proposal is approved and not every risk is absorbed.
At the same time, the ongoing revision of the Financial Sector Development and Strengthening Law (P2SK) provides an important complement to this dual arm approach. Under the new framework, monetary policy gains an expanded mandate: not only to maintain stability, but also to ensure that it supports growth and job creation. This shift acknowledges that stability alone is insufficient unless it is tied to productive economic outcomes.
All of this leads to a broader point: Indonesia’s economic credibility cannot be captured solely through fiscal ratios. The key shift here isn’t more policy but better-defined policy. The story of this evolution requires clear communication. The recent market reaction was a response to a narrative that had not yet fully explained how Indonesia’s new economic architecture fits together. Economic management is not merely technical stewardship, it is also the responsibility to tell the story of where the country is heading, and why the direction matters.
* The writer works at the Indonesian Ministry of Finance. The opinions expressed are the writer’s own and do not represent the views of the Ministry of Finance
